Executive Briefings

Opinion: How to Keep Your Supply Chain From Killing You

Touring Delphi's Dayton brake assembly plant, now closed, in the spring of 2007, showed me how purchasing managers can kill companies.

Opinion: How to Keep Your Supply Chain From Killing You

Walking a disc brake assembly line with the plant's manager, we noticed brake rotors running through with warps so bad, even a one-handed economist could notice the defect. The plant manager looked pained, explaining that Delphi had sent the rotors to the "Quality Assurance" lab of the original equipment manufacturer (OEM), who approved the part for two reasons. First, the part was expected to outlast the OEM’s warranty period, but eventually fail. In other words, the part was good enough for customers.  Second, not using the part would disrupt the OEM’s production because tooling had to be corrected at the supplier, which was located in Europe (I also thought that there would be a trickle of cash going to the OEM as honked-off drivers paid for new rotors).

The plant manager bluntly and colorfully said that the OEM’s purchasing department considered nothing but the delivered price of the part — issues of manufacturability, quality, or customer satisfaction after the warranty ended were absent from the “Quality Assurance” decision.

Two thoughts came to me that day. First: Never buy anything from the OEM. Second: Purchasing managers and companies guided by lowest delivered costs, rather than life-cycle costs, can kill their companies. A purchasing culture that does not live by the principles of lean, and depends on long, thin supply chains, can kill a business.

My visit to Delphi was part of an in-depth examination of manufacturers in Ohio's automotive supply chain on the eve of the Great Recession — from 2007 to 2008. Driving Ohio's Prosperity covered a lot of ground; what remains relevant are our observations on the often under-appreciated link between risk-based cost accounting and supply-chain management.

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Walking a disc brake assembly line with the plant's manager, we noticed brake rotors running through with warps so bad, even a one-handed economist could notice the defect. The plant manager looked pained, explaining that Delphi had sent the rotors to the "Quality Assurance" lab of the original equipment manufacturer (OEM), who approved the part for two reasons. First, the part was expected to outlast the OEM’s warranty period, but eventually fail. In other words, the part was good enough for customers.  Second, not using the part would disrupt the OEM’s production because tooling had to be corrected at the supplier, which was located in Europe (I also thought that there would be a trickle of cash going to the OEM as honked-off drivers paid for new rotors).

The plant manager bluntly and colorfully said that the OEM’s purchasing department considered nothing but the delivered price of the part — issues of manufacturability, quality, or customer satisfaction after the warranty ended were absent from the “Quality Assurance” decision.

Two thoughts came to me that day. First: Never buy anything from the OEM. Second: Purchasing managers and companies guided by lowest delivered costs, rather than life-cycle costs, can kill their companies. A purchasing culture that does not live by the principles of lean, and depends on long, thin supply chains, can kill a business.

My visit to Delphi was part of an in-depth examination of manufacturers in Ohio's automotive supply chain on the eve of the Great Recession — from 2007 to 2008. Driving Ohio's Prosperity covered a lot of ground; what remains relevant are our observations on the often under-appreciated link between risk-based cost accounting and supply-chain management.

Read Full Article

Opinion: How to Keep Your Supply Chain From Killing You